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Steering itself through a market meltdown in China and the Greece crisis, Indian markets are now at the doorstep of the June quarter earnings season. Though global factors will have an impact on the overall markets, it is the quarter’s performance that will now dictate the movement of individual stocks.
Analysts have already done their math and the end result does not look very encouraging. Bank of America Merrill Lynch in its results preview has said that headline Sensex profit growth is expected to be a mere 0.3% on a consolidated basis. Excluding financials, aggregate profit is expected to fall by 4.4%. Secondly, aggregate sales for Sensex companies is expected to contract for the third consecutive quarter at -2.8% on an annual basis.
Rating agency CRISIL, in its coverage of 600 companies across 60 sectors, also has a similar view on the forthcoming results. CRISIL expects revenue growth to be around 3%. The rapid slide in global commodity prices will hurt sales growth of steel, petrochemicals, and commodity chemical producers, says CRISIL.
A drop in crude oil prices will result in a decline in revenue of petrochemicals industry by 9-12%. Similarly, revenues of the commodity chemicals sector are projected to decline by 18-19%.
However, CRISIL added that revenue growth of export-oriented sectors will improve with that of IT sector increasing by 16-18% y-o-y on account of a rise in volumes and a weaker rupee. Revenues of the pharmaceuticals industry are expected to increase by a moderate 10% y-o-y. The automobile sector is forecast to grow at a slower pace of 6%, while telecom and FMCG sectors are expected to register revenue growth of 10-12% and 6-8%, respectively.
Edelweiss says that the capex cycle is likely to pick up with engineering and capital goods likely to register 3% YoY topline growth after contracting for eight straight quarters. Some segments of consumption are also expected to improve with domestic auto companies expected to post 12% annual revenue growth.
On the margins front, analysts expect some recovery but that is largely because of lower raw material prices, especially crude oil. Aggregate operating margins for Sensex companies are expected to show a 75 basis points expansion on a YoY basis due to lower crude oil prices, said Bank of America Merrill Lynch. However, margins in other sectors area expected to fall by 65 basis points led by autos 240 basis points and metals 125 basis points. One basis point is one-hundredth of a percentage point.
Sectors like steel, pharmaceutical and automobiles are likely to underperform while margins for telecom services, cement, FMCG and petrochemical sectors may improve says CRISIL.
But the worst seems to be over, say some analysts. Deutsche Bank notes that the worst of the consensus earnings cuts may be over. Rising government expenditure and improving macro indicators such as IIP growth, diesel consumption, coal dispatches, and HCV (heavy commercial vehicle) volume should lay the foundations for better earnings, aided by a favourable base effect, which should kick in from the September quarter onwards.
Bank of America-Merrill Lynch however feels that investors are likely to see more earnings downgrades. Consensus Sensex EPS growth for FY16 is around 23% on a bottom up basis. This is expected to be downgraded to around 15%.
Clearly, there is nothing much to look forward to in June 2015 quarter numbers, but as has been the case earlier, markets will look to direction in the words (guidance) that the management says rather than the numbers they declare.
